Asian markets were broadly lower for the week as concerns over U.S./Chinese trade diminished; but investors worried instead about developing political issues in Italy and, to a lesser extent, in Spain. By the end of the week the Shanghai Composite was near a 19-month low as it lost 2.1% for the week. The closely linked Hang Seng in Hong Kong did better, but still posted a weekly loss of 0.3%. In Japan the Yen strengthened considerably at the start of the week; and while it gave back some gains towards the end of the week, the Nikkei remained depressed and lost 1.3%. Australia’s S&P/ASX 200 fell 0.7% for the week, and the Kospi in South Korea was 0.9% lower.
While political concerns surrounding Italy and Spain were diminishing by the close of last week, the U.S. implemented new import tariffs on steel and aluminum at the end of the week that could continue to rattle markets in the coming week. Although the tariffs aren’t directed against any Asian nations, they do impact the European Union, Canada and Mexico, and the retaliation for the tariffs is being seen as another possible catalyst for a global trade war. This will almost certainly keep markets depressed as the week begins.
European markets were rattled early last week by indications that Italy may face another general election, after the Italian president blocked the formation of a coalition government. Investors feared that an Italian vote would be a proxy for the country’s’ continued use of the Euro and membership in the European Union. Further pressure came later in the week as Spain’s prime minister faced a no-confidence vote. By the end of the week both countries had new governments in place, and equities were headed higher. The late resolution didn’t shield the Stoxx Europe 600 from a 1.0% weekly loss. Germany and France fared worse, with the DAX losing 1.6% for the week while the CAC 40 was 1.4% lower for the week. Even British equities didn’t fully escape the European political chaos, and the FTSE 100 finished with a 0.4% weekly loss.
The coming week is likely to be far better for European equities since both Italy and Spain formed new governments by the end of the week. It may not have fully resolved the political issues in both countries, but investors are likely to be calmer in the void of political drama. Also helping is the sparse economic data due in the coming week. One factor that could move markets are currencies; and with the U.S. dollar looking to continue firming against its European and British counterparts, equities should perform well.
U.S. markets saw choppy trade throughout the week, falling after their three-day weekend, then rebounding, falling and rebounding again. By the end of the week the Dow Industrials had a 0.5% loss, but the S&P 500 booked a 0.5% gain. Outperforming both was the Nasdaq, which gained 1.6% for the week as technology shares are returning to favor. The U.S. dollar hasn’t been a drag on equities yet, but European politics were.
With the political situation improving in Italy and Spain, and the strong employment report on Friday, analysts are expecting the Friday rally to extend into the beginning of this week. U.S. economic growth remains strong, as evidenced by the employment data; and investors have little in the way of geopolitical risks left to keep them from equities. Technology was shining in the past week, but industrial and material stocks are also doing well, as trade issues with China get hammered out.
Gold came under pressure for most of the week, despite the risk posed by political chaos in Italy and Spain. The $1,300 level held as support for the entire week, until stronger-than-expected U.S. employment data sent gold lower on Friday to finish slightly under the key $1,300 level. With European risk basically gone for now, and the U.S. dollar rising ahead of the June 22 Federal Reserve meeting, there remains little to support gold in the coming week, and that $1,300 level could well become resistance, now.
Crude fell in four of the five trading sessions last week, losing 3.1% for the week, as traders were worried about the possibility of rising production from OPEC and Russia. Also providing a downside was a jump in distilled petroleum products in the U.S. The loss follows a 4.7% loss the week before and takes crude to its lowest level since April 10. The coming week could see even more downside, as losses were consistently over 1.5% a day last week; and there seems to be little relief in store for crude at this time. In fact there’s little technical support until the $64 level, with better support at the $62 level.
|00:50||JPY||Monetary Base y/y|
|02:30||AUD||Retail Sales m/m|
|02:30||AUD||Company Operating Profits q/q|
|09:30||EUR||Sentix Investor Confidence|
|15:00||USD||Factory Orders m/m|
|00:30||JPY||Household Spending y/y|
|02:45||CNY||Caixin Services PMI|
|05:30||AUD||RBA Rate Statement|
|09:00||EUR||Final Services PMI|
|10:00||EUR||Retail Sales m/m|
|14:45||USD||Final Services PMI|
|15:00||USD||ISM Non-Manufacturing PMI|
|13:30||USD||Revised Nonfarm Productivity q/q|
|13:30||USD||Revised Unit Labor Costs q/q|
|15:30||USD||Crude Oil Inventories|
|07:00||EUR||German Factory Orders m/m|
|08:30||GBP||Halifax HPI m/m|
|10:00||EUR||Revised GDP q/q|
|15:30||CAD||BOC Financial System Review|
|16:15||Cad||BOC Gov Poloz Speaks|
|00:50||JPY||Final GDP q/q|
|06:00||JPY||Economy Watchers Sentiment|
|07:00||EUR||German Industrial Production m/m|